What To Consider When Buying A Second Property
Thinking About Buying A Second Home?
There are many reasons why you might consider buying a second home. You might want a holiday house in the country, or you might want to invest your money in property, rather than investing with banks, an apparently appealing option given the current volatility of international markets. A rental property can be a nice little nest-egg for retirement.
As a house buyer, whatever your reason for buying a second property, there are a few things that you will need to take into consideration first:
Financing the second property
Unless you have enough money in the bank, you will be reliant on a mortgage to finance the purchase of the second property and you will need to be sure that you can make all the monthly repayments. If you are buying a second property as a holiday home, you cannot rely on renting it out to cover all the repayments, as holiday rentals are a very seasonal business.
If you have a large chunk of equity in your property, you could consider refinancing the loan on your main home and using the equity to purchase a second property; even if you don’t have quite enough to purchase the second property outright, you will be able to get better mortgage deals with a decent deposit.
Tax on Second Homes
Stamp Duty is payable on any residential property, the rates are: 1% if it’s above £125,000; 3% if it’s over £250,000; 4% if it’s over £500,000; 5% if it’s over £1 million; and, as of March 2012, 7% if it’s over £2 million. Stamp duty is payable by the purchaser and is applicable for buy-to-let just the same as if it were your main residence.
You will need to decide which property will be listed as your main home; if you decide to sell your second property, you will be required to pay Capital Gains Tax on any profit you make. Your main home is exempt from Capital Gains Tax, even if you make a profit selling it. You will be able to offset any money you have paid out for stamp duty, letting agent’s fees, repairs etcetera against the profit, so you won’t pay tax on it all.
If you rent out your second property you will need to declare the rental income, which will be subject to income tax, and you will need to file a Self-Assessment Tax Return. It is well worth employing a good accountant, so you don’t miss any tax breaks that you are entitled to claim.
Renting the property
If you are planning on renting the second property out, investigate what level of rent you will be able to charge and ensure that it covers the mortgage. As a landlord you have obligations to your tenants, which will inevitably incur extra costs along the way. For example, an annual Gas Safety check is required by law and you will also need buildings insurance, not to mention any repairs that are required with general wear and tear. You need to ensure that you will be able to cover these costs as well as the mortgage. You can find information on all of your responsibilities as a landlord at the National Landlords Association and the Residential Landlords Association.
Holiday Home Letting
If you are planning on buying a holiday home and will be reliant on a rental income, then always do your research. It doesn’t matter if it’s your favourite place and you love the property, if it isn’t going to appeal to anyone else then you will be out of pocket in the long run. You also need to consider the cost of maintenance and decoration of the property; holiday homes see a lot of wear and tear and could need redecoration at least once a year. It will also need to be kitted out with all the mod-cons and equipment that today’s holiday-makers have come to expect.
Whatever your reason for buying a second property, if you are planning to hold on to the property for the long term, your investment will almost certainly be rewarded. Make sure you consider all of the financial implications and that it is something you can afford; your property will be at risk of repossession if you do not keep up with mortgage payments.
If you find yourself in the position of owning two properties and find you need to sell one of them, contact quick house sale specialists National Homebuyers, we can help you sell your house fast. We buy any house, no matter what its condition and regardless of its location and, what’s more, we buy your house directly from you, eliminating the stress and hassle that can arise from being part of a property chain.
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